It’s a big week for the kiwi!

Investors are gearing up for a big week for the NZ dollar, with key data releases and a monetary policy meeting at the Reserve Bank of New Zealand (RBNZ). The RBNZ is unlikely to move this time around but the market will be closely monitoring the bank’s accompanying statement for any indications that the bank may be more dovish or hawkish than expected.

The RBNZ is only looking a little less hawkish since the release of Q2 inflation data

Rising house prices in NZ are likely going to force the RBNZ to raise rates, the question is when. The bank recently introduced certain measures in order to dampen the rise in property prices, which aren’t a long-term solution. Prices rose the most since 2008 in June, increasing 7.6% from a year earlier. Even PM Key has stated that the bank may be forced to raise interest rates in order to combat rapidly rising house prices.

Somewhat feeble inflation data for Q2 may steady the bank’s hand for the foreseeable future, possibility even until next year. The biggest threats to the NZ economy in the meantime appear to be from a possible increase in the kiwi and weak growth in NZ’s main trading partners, including Australia and China. While we aren’t expecting a massive drive higher in the kiwi against the US dollar, it is looking attractive against a number of other currencies, particularly the Aussie and the yen. NZ’s trading lines are also threatened by still weak global growth.

However, the NZ economy appears to have the necessary tools to handle these threats to domestic growth. In fact, it is in a much better position that many other advanced nations, which may create room for a rate rise towards the end of the year/early next year. Until then the market will be closely watching Governor Wheeler and his cohorts at the RBNZ for an insight into the monetary policy expectations of the bank. On a side note: Rod Carr was elected to replace Arthur Grimes as Chair of the RBNZ.

NZ’s trade figures and China’s private sector PMI reading

Before Thursday’s monetary policy meeting at the RBNZ, key data releases will draw the attention of NZD investors. First up is trade balance data out of NZ tomorrow (0845AEST) – expected 105M, prior 71M, followed by China’s private sector Manufacturing PMI at 1145AEST – expected 48.3, prior 48.2. Given recent weakness in Chinese economic data, the risk appears to be to the downside for the latter.

Source: Forex.com

23.07.2013